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Beige Book Finds Expansion Remains “Modest”; Employers Bring Back Retirees To Fill Job Openings

Courtesy of ZeroHedge View original post here.

One month after the Fed “modestly” downgraded its outlook on the US economy from “modest to moderate” growth to “slight to modest pace”, there were no notable changes in the latest, just released November Beige Book, in which the Fed said that at the national level, economic activity expanded “modestly” from October through mid-November, similar to the pace of growth seen over the prior reporting period.

The good news for the US economy, which for the past two quarters was almost entirely driven by consumer spending…

… is that most districts reported “stable to moderately growing consumer spending”, and increases in auto sales and tourism were seen across several Districts, even if St Louis noted that “multiple auto dealers continued to note seeing an increased preference for used and low-end vehicles.”

In welcome news for the US manufacturing recession, more Districts reported an expansion in the current period in manufacturing, than the previous one, even though the majority continued to experience no growth. Meanwhile, the picture for nonfinancial services remained quite positive, with most Districts reporting modest to moderate growth. Some more perspectives on the economy from sectors including:

  • Transportation activity was rather mixed across Districts. Reports from the banking sector indicated continued but slightly slower growth in loan volumes.
  • Home sales were mostly flat to up, and residential construction experienced more widespread growth compared to the prior report.
  • Construction and leasing activity of nonresidential real estate continued to increase at a modest pace.
  • Agricultural conditions were little changed overall, remaining strained by weather and low crop prices.
  • Activity in the energy sector deteriorated modestly among reporting Districts. Outlooks generally remained positive, with some contacts expecting the current pace of growth to continue into next year.

While the economy was roughly unchanged over the past month, the Fed founds that employment continued to rise slightly overall, even as labor markets remained tight across the U.S. Several Districts noted relatively strong job gains in  professional and technical services as well as healthcare, while reports were mixed for employment in manufacturing, with some Districts noting rising headcounts while others noted stable employment levels and one District reported layoffs. And while there were scattered reports of labor reductions in retail and wholesale trade, the prevailing complaint was one of continued labor shortages as the vast majority of Districts continued to note difficulty hiring driven by a lack of qualified applicants as the labor market remained very tight.

The shortage of workers spanned most industries and skill levels, and some contacts noted that their inability to fill vacancies was constraining business growth with multiple contacts reporting “bringing back retired workers as a way to fill openings.” Moderate wage growth continued across most Districts, and the Fed said that wage pressures intensified for low-skill positions, even if reports from both the BLS and Umich shows that wage growth has now peaked and is moving lower.

Finally, prices rose at a modest pace during the reporting period, with the Fed noting that reports regarding input costs and selling prices in the manufacturing sector were mixed, with some Districts noting deceleration in prices, while others cited increased cost pressures and a few indicated little to no change. Of note, some retailers mentioned higher costs, which contacts in some Districts attributed to tariffs. And yet, it will come as great news to Trump that most firms’ ability to raise prices to cover higher costs remained limited, suggesting there was no tariff passthru inflation, though a few Districts noted that companies affected by the tariffs were more inclined to pass on cost increases.

At the same time, service sector prices in reporting Districts were mostly flat to up. Energy and steel prices were flat to down, while reports on construction materials and agricultural commodity prices were mixed. Overall, the Fed said that firms generally expected higher prices going forward. Now if only the Fed would also join them and hike rates…

Quantifying the shift in the economy, while respondents showed a modest increase in concerns about trade, with “Tariff” mentions rising from a 4 month low of 24 to 30, mentions of “slow”-ness eased somewhat, and dropped from 56 back to 51 last month, which is to be expected in light of the modest improvement in the broader outlook.

What is perhaps more amusing is that one month after one Fed region blamed sharks and tornadoes for the recent downgrade in the economic outlook, this month it was revealed that it wasn’t the weather after all, but rather “a much deeper contraction in capital equipment spending.” Surely, that mistake is easy to make.



Finally, here are some of the most notable Beige Book anecdotes from the various regional Feds, as picked by Bloomberg:

  • Boston: Office leasing demand in Boston has been robust even as leasing activity has slowed because of extremely low vacancy rates
  • New York: Prices for Broadway theater tickets have edged down and are slightly lower than a year ago
  • Philadelphia: One staffing firm reported more difficulty recruiting for firms that only offered minimum wage, and another indicated that a different staffing firm was deploying yard signs to recruit for jobs paying $16 an hour
  • Cleveland: A clothing retailer reduced the use of price discounting to offset higher costs resulting from tariffs. By contrast, a food retailer said that while tariffs had increased costs, the company ‘cannot raise prices on a whim’ because of fierce competition
  • Richmond: A Virginia yarn manufacturer reported that economic uncertainty is hurting demand by leading some customers to reduce inventory levels
  • Atlanta: Monthly Mississippi casino gross revenues were up for the first nine months of the year compared with the same time frame in 2018
  • Chicago: Contacts indicated that the labor market was tight and that it was difficult to fill positions at all skill levels. Multiple contacts reported bringing back retired workers as a way to fill openings.
  • St. Louis: Multiple auto dealers continued to note seeing an increased preference for used and low-end vehicles
  • Minneapolis: A heavy equipment producer noted a slowdown in sales that they initially blamed on heavy rainfall this year, but said this ‘masks a much deeper contraction in capital equipment spending’
  • Kansas City: The number of active rigs continued to decline across most states but was primarily driven by a decrease in Oklahoma
  • Dallas: Contacts noted continued concern among agricultural producers over trade issues with China but noted there was increased optimism regarding trade talks and the possibility of some tariffs being removed
  • San Francisco: A few businesses in higher cost urban areas noted efforts to relocate jobs to lower cost areas of the district in order to contain labor compensation

The bottom line: the Beige Book will just weak (or perhaps strong) enough to justify the Fed’s decision to stay “patient” on future interest-rate hikes (or cuts) amid a healthy, but modest economic expansion, one where the only thing that matters is the S&P500.


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